Business guide to Coronavirus

Redundancy vs stand down: what is the difference?

 As COVID-19 devastates businesses large and small, employers are being faced with a dreadful conundrum: should we stand down staff, cut hours, or make people’s roles redundant? Employment lawyer Joe Murphy says you may only have one option.

No one wants to lay their employees off. But your desire to do the right thing and keep workers employed could backfire on you.

Joe Murphy, Managing Director – Workplace at Australian Business Lawyers & Advisors, says many employers believe that standing down employees is an easier or ‘nicer’ option than redundancy. It preserves the person’s employment, continuity of service is maintained, and leave continues to accrue.

The problem, says Joe, is that businesses may not be properly assessing the circumstances that allow for a stand down.

“It really is a last resort,” he says.

“You need to be very careful that you even have the option of standing someone down. There needs to be a cause for a stoppage of work that an employer cannot be held responsible for. Unless there is a stoppage and no useful work, you cannot stand down someone down.”

Joe says some employers mistakenly believe they can stand down employees simply because work is drying up and profits are down.

“But you can’t stand down employees on that basis or because of what you anticipate is going to happen in the next few months,” he said.

“Only at the point at which a stoppage occurs can a stand down occur.

Consider these two scenarios 

A scenario where a stoppage of work is legitimately likely is:

You run a pub. The NSW Government have issued a Public Health Order in line with the National Cabinet and Prime Minister’s restrictions, requiring all pubs to close and not be open to members of the public.  

You would still turn your mind as to whether any of your employees could be usefully employed. However, with that unlikely. the circumstances of the Public Health Order have given rise to a stoppage of work and the pub could stand down its employees.

A scenario where a stoppage of work is not likely to be considered legitimate is:

You run a retail shop. Due to the pandemic and the directions in respect of social distancing, your business has suffered a decrease in business of 50% with a significant downturn in customers visiting the shop. With 50% of the work still available for employees to perform, there has been no stoppage of work. 

You could not stand down the employees in this scenario. You would need to consider alternatives such as consulting with employees about taking leave, reducing hours of work (temporarily) or redundancies.

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What if you get it wrong?

“The problem with a stand down is that if you get it wrong, the business can attract a penalty for breaching the Fair Work Act, an award or agreement, and you could also be personally liable for any breaches.”

So, what should employers do?

If paid or unpaid leave is not an option, then reduced work hours may be a viable option for some businesses but be cautious about trying to steamroll any changes through.

“Every employee has to individually agree to cut their hours,” Joe says.

“Even though it’s a time of crisis you need every single employee’s agreement before you vary any terms of employment or contracted hours for that individual.

“And you need to be very careful that you don’t say ‘if you don’t agree, I will have to consider redundancy’.”

Joe suggests “painting a picture” for employees about the state of the business and why hours need to be cut. Talk about the need to remain viable and how this will help maintain everyone’s employment in the long term.

If employees don’t agree to reduced hours, then redundancy may be the only option. While redundancy is a more permanent solution, because you terminate the employee’s employment, it is usually a simpler solution legally speaking.

Before making any decision, Joe recommends employers consider:

  • Can they keep people on?
  • Looking ahead three months, what do they expect their workforce to look like?
  • If a stand down isn’t an option, and for many businesses it isn’t, is redundancy the most appropriate way to reduce the workforce now, even if you need to turn around in three months and re-employ people?

Sadly, says Joe, redundancy will often be the most practical option for employers.

We recommend you seek specific legal advice before making any changes to your workforce. Australian Business Lawyers & Advisors can help you find solutions and minimise the risk to your business.

Business Australia is on hand with a range of resources to help employers navigate this difficult time, with practical advice and information to maintain and sustain your business. Visit our resource hub to find out more.